For over a decade, economic rationalist ideas have been dominant in Australian society.
Economic rationalists seek to undo the post-war Keynesian consensus on state intervention in the economy, a centralized arbitration system and high public expenditure on welfare, in favor of reducing government spending, lowering taxation and deregulating the economy - especially the labor market - from government controls. Economic rationalism represents a revival of the classical liberal ideas espoused by Hayek, Friedman and Smith - that is the belief in the perfectibility of the market.
Opponents of economic rationalism reiterate the importance of government intervention in the economy both to promote economic growth and stability, and to promote social equity via a fairer distribution of income.
These two groups fundamentally disagree not only on the legitimacy of state intervention in the economy, but also on the question of lobby group involvement in public policy debates.
The economic rationalists base their argument on what is known as public choice theory. Public choice theory argues that all individuals, whether in the public sector or the private sector, act in their own self-interest. Politicians seek to gain support, for example, by satisfying the demands of organized pressure groups at the expense of the common interest. The only constraint on this pursuit of self-interest is the market, which constrains the pursuit of the interests of pressure groups for the benefit of the consumer.(1)
Consequently, public theorists favor private rather than public provision of goods whenever possible. They believe in a slimmer, allegedly impartial state which will be unconstrained by the demands of obstructive interest groups. Arguments for efficiency should take precedence over alternative concepts such as equality of opportunity and social cohesion.(2)
Public choice theorists are particularly critical of welfare spending and welfare lobbies. They argue that the welfare state and its services operate in the interest of the well-paid social workers (the so-called "New Class") who administer them rather than in the interest of the disadvantaged consumers whom they are intended to serve. These producers of the welfare services (it is argued) have a vested interest in maintaining and expanding welfare programs that has little to do with alleviating poverty and far more to do with enriching themselves.(3)
Thus public choice theorists refute the case for government intervention and welfare programs, not by an analysis of the actual workings of the welfare state, but rather by arguing that income redistribution and welfare spending is inspired by powerful interest groups or "poverty pimps".(4) The broad implication of this argument is that groups concerned with welfare spending (often perjoratively labelled the "compassion industry") should be excluded as far as possible from public policy debates.
Critics of public choice theory reject the notion that private markets are inherently superior to public enterprises, or that there can or should be a strict boundary between the two modes of production. Instead, they emphasize the interdependence of the public and private sectors, and the importance of production for a wide range of purposes beyond individual financial gain.(5)
They also reject as simplistic the concept of public sector welfare producers exploiting the poor and disadvantaged for their own benefit. They argue that the "New Class" is not a real class, but simply a loose category of people who happen to oppose free market views, whether in the public or private sector.(6) Concern is expressed that the the intended exclusion of interest groups from policy debates may be an infringement of democratic processes.(7)
Another criticism is that advocates of economic rationalism also represent vested interests, and these interests are likely to gain directly from any withering or "rolling back of the welfare state. …